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Study: Card Payments Foretell Delinquencies On Other Loans

CHICAGO (8/5/13)--Consumers who pay more than the minimum amount each month on their credit card bills are more likely to have lower delinquency rates not only on their card accounts but also on their mortgages and auto loans, according to a new study from TransUnion. Those who paid close to the minimum amount had higher delinquency rates.

The study gives lenders, including credit unions, another tool in evaluating consumer risk that may not show up through traditional credit scores, said the Chicago-based credit reporting agency. In the past, TransUnion has conducted several similar studies that concluded those who revolve or pay partial card payments are riskier. Last year's study found them to be three times riskier on new bank cards and five times riskier on existing bankcards than transactors who pay off the full amount each month.

The new study confirms conventional wisdom that transactors are better risks and "has quantified just how big an increase in risk revolvers present," said Ezra Becker, co-author of "Minimum Payments vs. Actual Payments: A Look at Debt Service Behaviors and Credit Capacity."

Just as important, he said, "the study revealed that not all revolvers are equal; those who pay more than the minimum on their credit cards, even if they don't pay off the full balance, present less risk across product types."

Each month, of consumers who make payments on their credit cards, about four in 10 will pay off their entire card balance. Six in 10 will pay only part of their remaining balance, and of those six, two will pay the minimum only.

The study also found that in some cases, individuals with lower credit scores and higher Total Payment Ratios (TPR)--a consumer's total monthly credit card payments divided by total minimum due on all the cards--actually outperformed those with higher credit scores but lower TPR levels.

"The only anomaly we found was that higher TPR levels actually resulted in higher auto and mortgage delinquencies for subprime and near-prime mortgage borrowers, but we attribute this performance to the mortgage crisis and its impact on the payment hierarchy--many consumers facing foreclosure placed a higher emphasis on paying off their credit cards," said Becker.

The study included performance on samples from 12 million mortgage consumers, 17 million credit card consumers and 22 million auto loans worldwide. To access the free report, use the link.